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The Equity Home Bias Puzzle

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The Equity Home Bias Puzzle

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Author : Ian Cooper
language : en
Publisher:
Release Date : 2013

The Equity Home Bias Puzzle written by Ian Cooper and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with International finance categories.

Home bias - the empirical phenomenon that investors assign anomalously high weights to their own domestic assets - has puzzled academics for decades: financial theory predicts that an internationally well diversified portfolio of stocks and short-term bonds can reduce risk significantly without affecting expected return. Although the globalization of international equity markets has increased international investments, equity portfolios remain severely home biased today, and no single explanation seems to solve the puzzle completely. In this paper, we first provide a thorough description of the equity home bias phenomenon by defining, discussing, and applying the competing measures and presenting some estimates of the costs of under-diversification. Second, we evaluate the explanations for the equity home bias proposed in the literature such as information asymmetries, behavioral aspects, barriers to foreign investment, and governance issues, and conclude that each explanation on its own falls short, suggesting that the equity home bias probably reflects a combination of factors. Lastly, we review the implications of international under-diversification for portfolio formation and the cost of capital of companies.

Equity Home Bias In International Finance

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Author : Kavous Ardalan
language : en
Publisher: Routledge
Release Date : 2019-05-17

Equity Home Bias In International Finance written by Kavous Ardalan and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-05-17 with Business & Economics categories.

This book provides a comprehensive and critical analysis of research outcomes on the equity home bias puzzle – that people overinvest in domestic stocks relative to the theoretically optimal investment portfolio. It introduces place attachment – the bonding that occurs between individuals and their meaningful environments – as a new explanation for equity home bias, and presents a philosophically multi-paradigmatic view of place attachment. For the first time, a comprehensive and up-to-date review of the extant literature is provided, demonstrating that place attachment is a contributing factor to 22 different topics in which variations of home bias are present. The author also analyses the social-psychological underpinnings of place attachment, and considers the effect of multi-culturalism on the future of equity home bias. The book’s unique approach discusses the issues in conceptual terms rather than through data and statistical methods. This multi- and inter-disciplinary book is an invaluable resource for graduate students and researchers interested in economics, finance, philosophy, and/or methodology, introducing them to a new line of research.

The Equity Home Bias Puzzle

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Author : Felix Rebmann
language : en
Publisher:
Release Date : 2014

The Equity Home Bias Puzzle written by Felix Rebmann and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.

External Habit Formation And The Home Bias Puzzle

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Author : Stephen H. Shore
language : en
Publisher:
Release Date : 2003

External Habit Formation And The Home Bias Puzzle written by Stephen H. Shore and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with categories.

The equity home bias, the observed lack of international diversification in equity portfolios, is a persistent puzzle in international finance. We propose an explanation for this puzzle based on external habit formation preferences. Agents' utility depends on the difference between consumption and a slow-moving subsistence level. The subsistence level, or external habit, is a backward-looking moving average of national aggregate consumption. We assume that a small group of agents holds primarily domestic securities. We can think of these agents as small business owners who are forced to hold domestic assets for agency reasons. If the remaining agents have external habit formation utility, then they will mimic the domestic bias of this small group. We perform a calibration using consumption and asset return moments from several countries and show that this effect can potentially explain a large aggregate holding of domestic assets. The model performs especially well in explaining high equity home bias in small countries, where the observed lack of international diversification is most puzzling.

Equity Home Bias In International Finance

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Author : Colin Gilligan
language : en
Publisher: Routledge
Release Date : 2019-06-17

Equity Home Bias In International Finance written by Colin Gilligan and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-06-17 with Business & Economics categories.

This book provides a comprehensive and critical analysis of research outcomes on the equity home bias puzzle. It introduces "place attachment" as a new explanation for the "equity home bias" puzzle and looks to the future of place attachment and its effect on home bias. For the first time, a comprehensive and up-to-date review of the extant literature is provided. The author presents a philosophically multi-paradigmatic view of "place attachment" - the bonding that occurs between individuals and their meaningful environments. Offering an overview of the literature on 22 different topics in which variations of "home bias" are present, the author demonstrates that place attachment is a contributing factor to all of these. Finally, the author analyses the social-psychological underpinnings of Place Attachment and considers the effect of multi-culturalism on the future of Equity Home Bias. The book's unique approach discusses the issues in conceptual terms, rather than using data and statistical methods. This book is both multi-disciplinary and inter-disciplinary, and therefore, it is an invaluable resource for graduate students and researchers who are interested in economics, finance, philosophy, and/or methodology, introducing them to a new line of research.

The Equity Home Bias Puzzle

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Author : Ian Cooper
language : en
Publisher:
Release Date : 2013-12-01

The Equity Home Bias Puzzle written by Ian Cooper and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-12-01 with Business & Economics categories.

After an introduction, this book defines the equity home bias puzzle and explains why it is important. It also reviews the two main methods used to quantify equity home bias, the positive and normative approaches, and shows how alternative home bias measures can be constructed using variations or combinations of these two methods.

Measures Of Equity Home Bias Puzzle

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Author : Anil V. Mishra
language : en
Publisher:
Release Date : 2016

Measures Of Equity Home Bias Puzzle written by Anil V. Mishra and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.

The paper develops measures of home bias for 46 countries over the period 2001 to 2011 by employing various models: International Capital Asset Pricing Model (ICAPM), Mean-Variance, Minimum-Variance, Bayes-Stein, Bayesian and Multi-Prior. ICAPM country portfolio weights are computed relative to world market capitalization. Bayesian model allows for various degrees of mis-trust in the ICAPM and Multi-Prior model's investors' ambiguity aversion. Mean-Variance computes optimal weights by sample estimates of mean and covariance matrix of sample return and Bayes-Stein improves precision associated with estimating the expected return of each asset. Paper finds that, for few countries, there is not much change in home bias measures using various models. Foreign listing, idiosyncratic risk, beta, inflation, natural resources rents, size, global financial crisis and institutional quality have significant impact on home bias. There are policy implications associated with home bias.